Excerpt from MarketWatch August 16, 2012
Commentary: Technician bullish on housing
By Peter Brimelow, MarketWatch 8/16/12 NEW YORK (MarketWatch)—Hope for housing? ... Builder confidence has climbed to its highest level in more than five years. The iShares Dow Jones U.S. Home Construction Index Fund is more than double its October low.
As I reported earlier this summer, Cabot Market Letter, a respected veteran letter, noted that what it called “good old fashioned chart analysis” alerted it back in December to a rebound in what it called “the much-hated real estate sector.”
Cabot was arguing that “the housing rebound has much further to go.”
In its most recent issue, Cabot continued to show nuanced optimism. It wrote of homebuilder Lennar Corp. (LEN), one of its buy recommendations: “Homebuilders have come out of the public’s eye during the past month, with most of them (including Lennar) easing lower on light volume as investors’ attention turned elsewhere.
“There’s always a chance that, having ground higher during the market’s tough stretch (April to July), housing names will sag somewhat if the market gets going, with investors rotating into growth names.
“But we’re more optimistic than that—in fact, we think the group could be ready to resume its upmove here, with Lennar, which has been a leader all year, participating. If you own LEN, hold on (or even consider adding a few more shares), and if you don’t own any, buying here is a good risk-reward trade. A pop above 32 in the weeks ahead would confirm LEN’s upmove is resuming.”
I’ve said before that Cabot Market Letter editor Michael Cintolo has obviously reflected very deeply about his long experience in the stock market and it’s surprising that no publisher has signed him up for a book—unless you know anything about the publishing business, in which case nothing surprises you. (See July 5 column).
I often look to Cabot for market timing commentary. It navigated the long pre-2008 boom and subsequent bust very well, although more recently it has had a rough time as the post-2008 bounce stalled. Hey, it’s what happens if you’re around long enough.
Over the year to date through July, Cabot Market Letter is a respectable 6.9% up by Hulbert Financial Digest count versus 10.37% for the dividend-reinvested Wilshire 5000 Total Stock Market Index.
This is a significant trend reversal—over the past 12 months, Cabot was down negative 10.37% versus a 7.38% gain for the dividend-reinvested Wilshire 5000.
But Cabot’s long-term record is extremely strong: for example, over the past fifteen years, Cabot is up 5.98% annualized versus 4.76% annualized for the total return Wilshire—an edge that compounds dramatically.
Breaking news: in its hotline of August 15, Cabot wrote “the market continues its slow-but-steady improvement—our market timing indicators are looking better and leading stocks are gradually pushing higher. There’s still not a ton of power, but the evidence has improved, so we’re adding two new stocks tonight, leaving us with about 33% in cash.”
Link to full story on MarketWatch: http://www.marketwatch.com/